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Should You Buy These Fast Growers?

Concluding our coverage of the most rapidly expanding fund firms.

In part 1 and part 2 of this series, we looked at the 10 fastest growing mutual fund shops over the past five years, as measured by mutual fund consulting firm Strategic Insight. Today we finish up our coverage of these rapidly expanding fund firms, and examine whether investors should consider buying their fund offerings.

Manning & Napier AdvisorsAt Manning & Napier, the team reigns supreme. Rather than relying on a single superstar fund manager, a committee of experienced analysts makes all portfolio buy and sell decisions. This well-honed team approach has led to some pretty solid results. The firm has seen net new asset inflows of 574% of 2005 year-end assets, about half of which have been funneled into Manning & Napier World Opportunities (EXWAX). This flexible foreign fund ranks in the top 4% of all large-cap foreign blend funds over the past decade, with an annualized return of 9.6%.

Here, the team looks for reasonably valued candidates utilizing several different investment strategies, with the resulting portfolio blending value plays, industry leaders with sustainable competitive advantages, and well-positioned cyclical names. Manning & Napier embraces stocks of all market capitalizations, investing in larger names such as Schlumberger(NYSE: SLB) and Unilever(NYSE: UL) alongside more midsized firms such as Canada's Trican Well Service and French energy firm CGG Veritas(NYSE: CGV). Over the long run, performance here has been remarkably consistent in a wide range of market conditions. All in all, Manning & Napier World Opportunities is a first-rate core foreign holding for nearly any investor.

Hussman Econometrics AdvisorsManager John Hussman has long been bearish on the U.S. economy, from before the financial crisis right up through today. Hussman views the current market as "overvalued, overbought, and overbullish." As a result, his flagship Hussman Strategic Growth Fund (HSGFX) is "well-hedged" against further downturns. While many long-short mutual funds tend to lag the market and post middling returns, Strategic Growth has outperformed the S&P 500 Index by an annualized 2.4 percentage points over the past decade. With two raging bear markets in that time period, this fund has looked pretty good to investors, fueling the shop's 269% total growth in new assets. The fund has struggled mightily in the past two years amid the market rally, but it still retains an attractive long-term record.

Even with Hussman's bearish outlook, he has managed to find some pockets of opportunity in the market. Right now, health-care names account for just more than one-third of the fund's equity holdings. Hussman likes low-priced names such as AstraZeneca(NYSE: AZN) and insurers Humana(NYSE: HUM) and WellPoint(NYSE: WLP), all of which trade at P/Es of less than 11. Ultimately, the Strategic Growth fund is one of the better long-short funds out there, and it would make a good hedging tool within a portfolio. However, because of its pessimistic nature, the fund typically won't beat the market in up years. Use this fund sparingly, and with one eye open.

Henderson Global InvestorsThis fund shop weighs in with 344% growth in new asset inflows. Founded in 1934, Henderson Global offers several foreign equity mutual funds, including its largest offering, Henderson International Opportunities (HFOAX). This fund currently boasts roughly $3.6 billion in net assets and is a few months shy of achieving a 10-year track record. The fund is run by a large team of managers, with one or two managers assigned to each specific geographical region, allowing individuals to develop an expertise in their own area. Reasonably low turnover and a focus on the long-term are hallmarks of the investing process here.

Long-run fund performance is solid -- the fund ranks ahead of 89% of its large-cap foreign blend peers over the most recent five-year period. In addition, the fund offers a low minimum investment of just $500, providing access for a greater number of investors. However, this fund, along with the others in the Henderson line-up, comes with a front-end load. In addition, expenses are not the lowest here. The International Opportunities fund charges 1.48% for the A shares, while many of the shop's other funds are even more expensive. If you can buy the fund within a qualified retirement plan that waives the front-end load, it might make sense to own. If not, I'd recommend looking elsewhere for cheaper, no-load foreign options.

Remember that just because other investors are pouring into certain mutual funds or fund shops, you shouldn't blindly follow the herd. Take time to carefully evaluate any fund before you buy it, looking for a long-tenured manager or management team, low expenses, and solid performance in both good and bad market environments. That's the key to finding the best mutual funds -- not chasing performance and investor dollars.